yesEmily BirnbaumNone
×

Get access to Protocol

I’ve already subscribed

Will be used in accordance with our Privacy Policy

Power

What does tech think of a potential M&A moratorium? 'A fire hose to blow out a candle'

The proposal by Elizabeth Warren and Alexandria Ocasio-Cortez draws on concerns over tech giants whose influence only seems to be expanding during the pandemic.

AOC

Rep. Alexandria Ocasio-Cortez and Sen. Elizabeth Warren are proposing a partial ban on mergers and acquisitions, arguing that big corporations could consolidate power by buying struggling companies.

Photo: Scott Heins/Getty Images

Warning of "vultures" waiting to snap up smaller competitors who've been battered by the economic collapse, Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez are proposing a coronavirus-era variant on efforts to limit what they see as the growing monopoly power of the biggest corporations: a temporary ban on some mergers and acquisitions. The tech world's response? The lawmakers are missing the mark and might do much more harm than good.

"As applied to the tech industry, the concerns that are being raised are not applicable," said M&A lawyer Alessandra Simons. "It's like trying to solve a problem by using a fire hose to blow out a candle."

A partner at Goodwin Procter, Simons is helping videoconferencing service BlueJeans be acquired by Verizon, a move the Federal Trade Commission is allowing to go through at an accelerated pace, according to a notice posted Monday. She asserted that, for the most part, big tech companies don't seek to muscle out competitors, but rather acquire small businesses to "expand their product offering," which is not necessarily in the wheelhouse of antitrust regulators.

Warren and Ocasio-Cortez's proposal, regardless of its success, draws on the tension over tech giants whose influence only seems to be expanding during the pandemic, warning that "big tech has moved to snatch up struggling startups." It echoes a similar call this week from House Judiciary antitrust subcommittee chair David Cicilline, a Democrat from Rhode Island. "As millions of businesses struggle to stay afloat, private equity firms and dominant corporations are positioned to swoop in for a buying spree," Cicilline said.

Warren, Ocasio-Cortez and Cicilline all say they want to include a merger moratorium in an upcoming COVID-19 economic stimulus package, known as "Phase 4" in D.C. parlance. But they're facing resistance from Republicans and representatives of the business world, who warn that an all-out pause on M&A could stall an already suffering economy.

Noah Phillips, a Republican FTC commissioner, said in a phone interview Tuesday that the FTC, one of the two regulators tasked with overseeing antitrust law, has found that mergers and acquisitions are down significantly amid the pandemic as stock values plummet and businesses cope with having less cash on hand.

Phillips said it's "plausible" there will be a wave of tech acquisitions down the line. (In a recent survey, only 13% of tech, media and telecom CFOs said COVID-19 was decreasing their appetite for takeovers, compared to 25% across industries.) "But it's the opposite of what we're seeing right now," said Phillips, who has spent much of the week criticizing the Democratic merger moratorium idea.

Phillips confirmed that the FTC is continuing to forge ahead in its review of a decade of acquisitions by the largest tech companies and its antitrust probe of Facebook. "I think we ought to be driven in policymaking by the facts on the ground," Phillips said.

Warren and Ocasio-Cortez's proposal, which they plan to write into legislation, would ban "risky" mergers and acquisitions that involve companies with more than $100 million in revenue or financial institutions with more than $100 million in market capitalization. The prohibition would extend to private equity companies, hedge funds or companies that are majority-owned by a private equity firm or hedge fund, as well as to all transactions that must otherwise be reported to the FTC.

The lawmakers also want the FTC to establish a legal presumption against M&As that pose a "risk to the government's ability to respond to a national emergency."

The sweeping proposal is unlikely to gain serious traction in Congress. Several GOP members of the House Judiciary Committee were frustrated when Cicilline announced his proposal last week without giving them a heads-up, a GOP aide close to the committee's thinking told Protocol. Cicilline has not yet released the text of his proposal, which will likely take the form of a letter to House leadership, but he said he hopes to prevent dominant corporations from going on a "buying spree" while still leaving room for "merger activity that is necessary to ensuring that distressed firms have a fresh start."

"We are deeply skeptical of what Cicilline's proposing here," the GOP source said, calling it an "antitrust power grab in the middle of a crisis."

Nonetheless, that Warren, Ocasio-Cortez and Cicilline are coalescing around the idea provides a measure of progressive energy — which has effectively shaped the policy debate around tech for the past two years. "These companies should be using their cash reserves to help their employees, not to acquire more power," Ocasio-Cortez said in a statement. "If we don't stop predatory M&As now, the actions of big corporations will have decades-long economic consequences — for all of us."

Netchoice, a tech trade group that counts Facebook, Google and Twitter among its members, has started to lobby against the moratorium proposals. Carl Szabo, Netchoice's vice president and general counsel, told Protocol that for many startups, which are notoriously unprofitable and experiencing mass layoffs due to COVID-19, mergers and acquisitions are a matter of survival.

Doug Cogen, a partner and co-chair of the M&A team at Fenwick & West, said many small companies rely on larger companies to "scale" their products. "A blanket moratorium is much too blunt an instrument at this critical time," Cogen said.


Get in touch with us: Share information securely with Protocol via encrypted Signal or WhatsApp message, at 415-214-4715 or through our anonymous SecureDrop.


Several smaller-scale congressional proposals emerged last month that would allow the FTC and Department of Justice to take more time reviewing emerging deals in light of the logistical difficulties posed by COVID-19. But none of those narrower proposals appeared in the final stimulus bill, noted Jacqueline Grise, the chair of law firm Cooley's antitrust and competition practice group, making it less likely that a broader ban could make it into the next legislative package.

"We have heard from a lot of clients that are concerned," said Grise, including "private equity, bankers and everybody wanting to get a read on whether this is really likely to happen or not."

"We say that we understand there's a reason to be potentially concerned, but at the end of the day … those proposals in the past didn't get passed either and those were less aggressive proposals," Grise said. "We tell clients we're watching it very closely, but nothing is expected to happen soon."

People

Expensify CEO David Barrett: ‘Most CEOs are not bad people, they're just cowards’

"Remember that one time when we almost had civil war? What did you do about it?"

Expensify CEO David Barrett has thoughts on what it means for tech CEOs to claim they act apolitically.

Photo: Expensify

The Trump presidency ends tomorrow. It's a political change in which Expensify founder and CEO David Barrett played a brief, but explosive role.

Barrett became famous last fall — or infamous, depending on whom you ask — for sending an email to the fintech startup's clients, urging them to reject Trump and support President-elect Joe Biden.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

The failed Visa merger was a lucky break for Plaid

Plaid COO Eric Sager says the deal's collapse won't derail the fintech startup.

In some ways, Plaid stands to benefit after its big deal with Visa fell through.

Image: Jonas Leupe/Unsplash

Plaid spent most of 2020 preparing to be gobbled up by Visa. Heading into 2021, it's going it alone again — and with a potentially higher valuation and newfound freedom from a giant corporation, it might be better off.

If it had gone through, the merger with Visa would have combined a rising star of the fintech revolution with one of the old guards of the financial services industry. But Visa said last week that it was ditching the $5.3 billion deal to avoid a "protracted and complex" legal battle with the Justice Department, which had sued to block what it considered an anticompetitive merger.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Signal at (510)731-8429.

Politics

Silicon Valley is cracking down on Congress

Big Tech's pause on PAC contributions highlights how powerful it's become.

Democrats are particularly frustrated by Facebook, Google and Microsoft's decision to halt PAC contributions altogether, rather than targeting particular Republican lawmakers.

Photo: Tobias Hase/Getty Images

Congress has failed to act on every opportunity it had to seriously rein in the power of Big Tech over the last several years. Negotiations over a federal privacy bill fell apart last year, antitrust reform hit partisan headwinds and every debate over content moderation since 2016 has devolved into a theatrical yelling match that left the parties more divided over solutions than ever.

And now, the bigger-than-ever Silicon Valley is flexing its muscles with impunity as companies cut off violent extremists and wield the power of their political donations, acting more like a government than the U.S. government itself. They're leaving Republicans and Democrats more frustrated and powerless than ever in their wake.

Keep Reading Show less
Emily Birnbaum

Emily Birnbaum ( @birnbaum_e) is a tech policy reporter with Protocol. Her coverage focuses on the U.S. government's attempts to regulate one of the most powerful industries in the world, with a focus on antitrust, privacy and politics. Previously, she worked as a tech policy reporter with The Hill after spending several months as a breaking news reporter. She is a Bethesda, Maryland native and proud Kenyon College alumna.

Trump wants to spend his final week as president getting back at Twitter and Facebook for suspending him.

Photo: Oliver Contreras/Getty Images

President Trump has been telling anyone who will listen that he wants to do something to strike back at Big Tech in the final days of his presidency, promising a "big announcement" soon after Twitter permanently banned him last week.

In a statement that Twitter has taken down multiple times, Trump hammered usual targets — Section 230, the "Radical Left" controlling the world's largest tech platforms — and pledged he would not be "SILENCED." But at this point, as he faces a second impeachment and a Republican establishment revolting against him in the waning days of his presidency, there's likely very little that Trump can actually do that would inflict long-lasting damage on tech companies.

Keep Reading Show less
Emily Birnbaum

Emily Birnbaum ( @birnbaum_e) is a tech policy reporter with Protocol. Her coverage focuses on the U.S. government's attempts to regulate one of the most powerful industries in the world, with a focus on antitrust, privacy and politics. Previously, she worked as a tech policy reporter with The Hill after spending several months as a breaking news reporter. She is a Bethesda, Maryland native and proud Kenyon College alumna.

We need Section 230 now more than ever

For those who want to see less of the kind of content that led to the storming of the Capitol, Section 230 may be unsatisfying, but it's the most the Constitution will permit.

Even if certain forms of awful speech could be made unlawful, requiring tech sites to clean it up would be even more constitutionally difficult.

Photo: Angel Xavier Viera-Vargas

Many conservatives are outraged that Twitter has banned President Trump, calling it "censorship" and solemnly invoking the First Amendment. In fact, the First Amendment gives Twitter an absolute right to ban Trump — just as it protects Simon & Schuster's right not to publish Sen. Josh Hawley's planned book, "The Tyranny of Big Tech."

The law here is clear. In 1974, the Supreme Court said newspapers can't be forced to carry specific content in the name of "fairness," despite the alleged consolidation of "the power to inform the American people and shape public opinion." The Court had upheld such Fairness Doctrine mandates for broadcasters in 1969 only because the government licenses use of publicly owned airwaves. But since 1997, the Court has held that digital media enjoys the same complete protection of the First Amendment as newspapers. "And whatever the challenges of applying the Constitution to ever-advancing technology," wrote Justice Antonin Scalia in 2011, "'the basic principles of freedom of speech and the press, like the First Amendment's command, do not vary' when a new and different medium for communication appears."

Keep Reading Show less
Berin Szóka

Berin Szóka (@BerinSzoka) is president of TechFreedom (@TechFreedom), a technology policy think tank in Washington, DC.

Latest Stories